Money laundering through property is one of the oldest and most notorious ways to move and conceal illicit funds. The statistics speak for themselves: more than $2.3bn was laundered through US property from 2015 to 2021, a report by Global Financial Integrity (GFI) found.
Similarly, in the UK, 160 properties worth over £4bn were identified as being purchased by high corruption-risk individuals in 2017 alone. Even before that, Donald Toon, the director of economic crime at the National Crime Agency, stated his belief that “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK.”
The property sector is a popular choice for criminals to clean their “dirty” money as it represents a relatively low-risk investment, as well as the opportunity to increase funds through reselling and renting. By doing this, money is fed into the legitimate financial system, while the market is artificially distorted and the flow of human trafficking, terrorism, and other forms of organised crime continues.
Clearly, it’s more critical than ever that compliance teams recognise the high risk nature of property, understand the importance of their role and the tools at their disposal. The responsibility ultimately lies with them – but help is needed. If the industry is to minimise the risk of money laundering, and slash the perception that property is something of a safe haven, more support must be provided.
It’s no coincidence that property is a well-established target for money launderers; criminals are aware they can exploit the industry’s vulnerabilities. That’s why it’s essential compliance professionals are well informed when it comes to pinpointing red flags, with several often occurring at one time, and knowing when to take action. Using third parties, usually to conceal an identity, and transactions from high risk jurisdictions are examples of red flags, as well as limited face-to-face contact and remarkably high transaction levels. All of these should ring alarm bells if recognised by compliance professionals, who may be unsure of the warning signs or spread too thin with their workload.
A detail-focused approach is also essential when undertaking due diligence, a process that is required of any business that interacts with customers and is covered by Know Your Customer (KYC) and AML regulations. Done effectively, this works hand in hand with procedures to highlight suspicious activity. But, yet again, it can be time consuming and complicated to implement manually.
For AML processes to be successful in property, a tiered approach must be implemented. First and foremost, improved and robust training for compliance professionals, which makes it easier to understand HMRC guidance, is essential. This is due to regulation being hard to digest and occasionally unclear, creating a gap in understanding for those who should be leading the charge. If confusion lingers, property firms run the risk of huge fines for rule breaking. Estate agents account for the largest number of AML fines issued by HMRC since the introduction of AML supervision, owing nearly half (45.4%) of all fines issued. Clearly, it pays to employ knowledgeable compliance professionals.
The same can be said for the value in building a strong culture of compliance in the workplace, with core pillars key to its success. Most importantly, the ethos is set from the top; all board members and senior management should emphasise the importance of AML and empower compliance officers through their positive actions. These should include focusing on the threats revealed in ethics and compliance risk assessments and using the findings to determine the actions necessary to avoid, mitigate, or remediate those risks. Additionally, a thorough testing and monitoring programme, which is evaluated regularly, should be in place to ensure that the control environment is effective.
Technology is also streamlining complex processes, which can boost the success of compliance substantially. At every step of a transaction, tech can rapidly screen suspicious names, monitor monetary transfers and automate sanctions screening. Not only is the entire process sped up, it also frees up compliance professionals to analyse an overview of activity and report effectively when necessary.
The bottom line
The exploitation of the property industry by criminal enterprises is well documented. Compliance professionals are critical in minimising risk and further support – taking the form of advancing tech, comprehensive training and a culture of ethics and compliance – will bolster their hard work. Only then can the sector be considered, as the old saying goes, safe as houses.
Simon Luke is UK country manager at First AML